Financial Markets and the Economy - Intersections

First, let’s get today’s policy out of the way… Given the explicit mandate of the MPC, today’s rate action was a foregone conclusion.  After all, CPI will likely stay well above 4% for the next few months, so the MPC was bound to ignore all entreaties for rate cuts.  The only question was on how hawkish would their commentary be – and on that, they seemed to meet analyst expectations. …and then step back for a bit The striking feature in all this is how much of public monetary policy discourse now revolves around CPI estimates and policy repo rate responses. And little else. Never mind that CPI estimation in India effectively boils down to estimating future prices of food and other commodities. If we had a good model for that, we wouldn’t be wasting it on CPI estimates – we would be out playing the commodity markets. But still, even if CPI outcomes are somewhat unpredictable, as long as we know that interest rates impact CPI’s broad direction...